Documentary Credit

A documentary credit, or letter of credit, is a bank’s irrevocable undertaking to pay the seller against presentation of conforming documents, typically including a clean on-board bill of lading. Governed by the ICC Uniform Customs and Practice for Documentary Credits, UCP 600, it operates on the autonomy principle: the bank deals in documents, not goods, and pays on apparent conformity regardless of disputes under the sale contract. This is why the carrier’s bill of lading, and any clausing of it, is commercially decisive.